Should You Be Investing In Stock Market Till Elections?

General elections in India are very near now. Government is going to change in roughly two months time. With this change in government, changing will be not only the political parties in power but also government policies for businesses. It would be interesting to see who comes in power, how stable their government would be and how much boost their policies would be able to provide. Looking at due elections, should you be investing in stock market now?

Markets across the globe are trying hard to bounce back, the mix of economic slowdown, financial crisis, currency conundrum and flight of capital has made it extremely difficult. Despite continued efforts by various governments to prop their respective economies, the measures have fallen short. There is continued uncertainty over a rebound in current stock market — how and when!

Also Read: Effects Of General Elections On Indian Stock Markets in 2009

Indian government has been very successful to rein in inflation (2.43% as on Feb 28, 2009 from its peak of 12.83% on Aug 16, 2008) and infused liquidity into the system through rate cuts and fiscal measures, there is the uncertainty of the forthcoming general elections. The elections will decide whether there will be a stable government at the Centre which will take the necessary measures to check the economy from a likely deflation or the current recessionary trend.

The Indian stock market has shown enough resilience over time, but market men feel the time is not conducive enough for retail investors to buy stocks and should sit on cash until the elections are over and the outcome becomes clear.

Special Feature: Stock Market in 2009 - Stocks to Buy

“Instead of buying stocks before elections, an investor should keep cash ready supported by a well-calculated strategy as to where to invest and which stocks should be looked at. A knee-jerk reaction post election will provide an opportunity to pick up stocks at attractive prices,” said Daljeet Singh Kohli, head of research (PCG) of Emkay Global Financial Services.

Investors should stick to only those sectors which are the pillars of growth for any developing country, that is, banking, power and oil & gas. Among these sectors, one can track stocks like State Bank of India, Punjab National Bank, Bank of Baroda, Tata Power, NTPC, Reliance Industries, ONGC, and Cairn India.

According to Sandip Bandyopadhyay, director and CEO, Reliance Money, companies under ‘A’ group and large caps in nature are mostly preferred irrespective their sector. Blue chip stocks in infrastructure and capital goods also make investment sense. One can expect an upside in these sectors from Q2 of FY10.

Best stocks to buy now are banking stocks
State Bank of India (SBI) - Elephant in Banking sector

Bandyopadhyay advises investors to maintain 50 per cent of their corpus in cash before the elections and the balance funds should be invested piece meal but not in bulk.

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Stock Market Trend - Sinking Slowly

“There is nothing wrong for an investor if he sits on cash for six months. Park the same money in bank savings account to earn assured interest. There will be fresh bottom post election and that will be the time right to enter equity market,” said Manish Innani, member, NSE.